By Rasa Vaiciuniene, Industry Analyst at Euromonitor International
With over 40 million tonnes of crude oil output per annum, Azerbaijan is one of the largest oil producers and exporters in the Middle East. However, after the discovery of the Shah Deniz field in 1999 the country’s prominence in the natural gas sector has also been growing. With expanding natural gas output, Azerbaijan is in a position to take advantage of its proximity to Europe.
Although the Shah Deniz field already plays a central role in the country’s natural gas sector, its full potential has yet to be unleashed. According to the field operator, British Petroleum Plc, the Stage II gas development project in the field will add 16 billion cubic metres (bcm) to the country’s annual gas output. Local demand for natural gas is unlikely to witness major expansion as domestic power plants are already predominantly fuelled by natural gas. Therefore, natural gas exports, which amounted to 7.3 bcm in 2013, are set to triple once the project hits full capacity.
To facilitate growth in exports the South Caucasus Pipeline is to be expanded, and there are plans to start construction of a new Trans-Anatolian Pipeline (TANAP) in April 2015, which will stretch across Georgia and Turkey, with 37% of volume dedicated to the Turkish market and 63% delivered to European partners. In addition, another Trans-Adriatic Pipeline (TAP) will be built to transport gas across Greece and Albania to Italy. Initially the TAP will be capable of transporting some 10 bcm of gas per annum, but ultimately its capacity could reach over 20 bcm.
According to the latest available Eurostat data, the European Union natural gas imports from external countries amounted to 286bcm in 2012. Russia, with 106 bcm supply, accounted for over third, and the bulk of the gas supplied to Europe travels through Ukraine. Therefore, in the wake of the Ukrainian crisis the dependency on Russian gas is recognised as a major issue by the majority of European country leaders.
Although the pipelines connecting Europe to the Azerbaijani natural gas field in the Caspian Sea will be far from sufficient to fully replace the Russian supply, the associated diversification benefits are viewed as a major enhancement of European energy security. Although international projects of such magnitude are very difficult to implement, the recognition of strategic importance pushed international agreements to be settled, and construction of TANAP is to commence in April 2015, whereas TAP pipeline building work should start in 2016. Gas transportation is expected to commence by the end of the decade.
